Real Estate & Construction Law Monitor : Real Estate & Construction Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Development & Building

In an effort to jump start New Jersey's economy, on July 27, 2009, Governor Corzine signed The New Jersey Economic Stimulus Act of 2009, A-4048/S-2299 (the “NJ Stimulus Act”). The NJ Stimulus Act contains a series of incentives to stimulate development in New Jersey including: grants funded by future development, relaxation of and expansion of eligibility for Urban Transit Hub Tax Credit, boosting of construction on college campuses and the temporary suspension of the affordable housing growth share fee requirement for commercial developments of 2.5% of the equalized assessed value.

The NJ Stimulus Act imposes a temporary moratorium on the collection of the 2.5% non-residential development fee imposed by the “Statewide Non-Residential Development Fee Act” for approved projects prior to July 1, 2010; provided that a permit for construction of the building has been issued prior to January 1, 2013. In part, the 2.5% non-residential development fee imposed under the Affordable Housing Reform Statute (P.L.2008, c.46), which made significant changes to the Fair Housing Act, N.J.S.A. 52:27D-301 et seq., also known as the Statewide Non-Residential Development Fee Act, does not apply to:

(1) non-residential property for which either temporary or final site plan approval has been issued prior to July 1, 2010; or
(2) certain non-residential planned development which has received approval or a non-residential development for which the developer has entered into a developer’s agreement pursuant to a development approval prior to July 1, 2010; or
(3) non-residential projects that, prior to July 1, 2010, are referred to a planning board by the State of New Jersey, a governing body or other public agency for review; or
(4) non-residential property for which a site plan has received approval by the New Jersey Meadowlands Commission prior to July 1, 2010; or
(5) individual buildings within a non-residential phased development that received either preliminary or final approval prior to July 1, 2010;

in each case provided that a permit for construction of the building has been issued prior to January 1, 2013.

Additionally, under the NJ Stimulus Act, developers who paid the 2.5% non-residential development fee in connection with certain projects that, prior to July 17, 2008, received approval or were referred to a planning board by the State of New Jersey, a governing body or other public agency for review are entitled to a return of any fees paid that represent the difference between monies committed prior to July 17, 2008 and money paid on or after that date. To obtain a refund of the development fees, the developer must file a claim for refund within 120 day of the effective date of the NJ Stimulus Act.

Developers should act quickly to entitle their projects to avoid the 2.5% non-residential development fee and/or file a claim for refund if a developer has already paid the non-residential development fee under the Statewide Non-Residential Development Fee Act. It may be prudent to consult with an attorney if you have questions regarding eligibility for return of a developer fee payment or any other provision of the NJ Stimulus Act.

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In a recently decided New York case, 325 Schermerhorn LLC v. Nevins Realty Corp., decided April 27, 2009, Superior Court Kings County, New York, a purchaser under a contract of sale for real property was awarded the return of its $3.6 million contract deposit after the Kings County Supreme Court held the seller was in default for failing to remove a transit easement encumbering the property. The contract of sale provided that the properties were to be sold “free of all encumbrances” except as otherwise stated in the contract. Attached to one of the contracts at issue was a survey which indicated the footings of the building on the property rested on a subway roof. A subsequent title report identified the transit easement, and the purchaser objected to the easement and demanded it be removed from title. The seller argued that the purchaser was aware of the easement before the contract was signed and that the purchaser agreed under the contract to purchase the properties in their “as-is” condition. The buyer claimed that the seller was in default under the contract since the transit easement was an encumbrance that affected the marketability of title to the property.

The court defined the test of “marketability of title” as: “Whether there is an objection thereto such as would interfere with a sale or with the market value of the property… a purchaser ought not to be compelled to take property, the possession or title of which may be obliged to defend by litigation.” The court explained that “an easement is an encumbrance rendering title unmarketable with the same effect as mortgages, leases and the like” and declared that a purchaser need not accept title subject to an encumbrance if the contract specifies conveyance of title free of all encumbrances, even if there is no showing that the encumbrance actually diminished market value.

The court further noted that even if the purchaser knew of the easement, such knowledge did not defeat the entitlement to buy the property free and clear of it in accordance with the contract. The “as-is” provision in the contract was held to be a more general provision that conflicted with the specific title clause that required title be conveyed “free of all encumbrances”. The court declined to adopt an interpretation which would leave any provision without force and effect and held that the more specific provision would be controlling.

Courts often make a determination as to which provision will govern when there are conflicting provisions in a contract, often yielding to the more specific provision, as the court did in this case. Therefore, to prevent any ambiguity regarding the intent of the parties, the contract should clearly state which provisions will control in the event of any conflict.
 

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In two recent decisions, the New Jersey Appellate Division made clear that purchasers of homes from the original owners cannot sue the manufacturer of an exterior siding product for the home under the New Jersey Products Liability Act, N.J.S.A. 2A:58C-1 to -11 (“NJPLA”) if they suffer only economic losses. In addition, the purchasers also cannot assert a claim under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -184 without some evidence of representations or concealments from the manufacturer made to them regarding the product. These two decisions should cause home buyers to be especially diligent when reviewing their home inspection reports, as they now may be precluded from asserting tort claims against the manufacturer of faulty or defective products or systems, and will have to rely primarily on contract claims against sellers for relief.

In Marrone v. Greer & Polman Construction, Inc., 405 N.J. Super. 288 (App. Div. 2009) and Dean v. Barrett Homes, Inc., 406 N.J. Super. 453 (App. Div. 2009), the Appellate Division addressed similar claims by homeowners regarding the Exterior Insulation Finish System, or EIFS, siding that was applied to each of their houses. EIFS is a system that incorporates foam insulation panels, reinforced mesh and a textured finished coating to the siding of the house. The finished product resembles a stucco finish. In both cases, the Marrones and the Deans purchased their homes from the original homeowner.

Both houses were built in 1995. The Marrones purchased their home in 2003 and the Deans purchased their home in 2002. Each homeowner later developed problems with the EIFS siding. Each party then sued, among others, the EIFS manufacturer, the subcontractor who applied the EIFS, and the general contractor who built the house. Neither the Marrones nor the Deans sued either of the sellers of the homes. The buyers each settled with the general contractor and subcontractor, leaving only the tort claims against the manufacturer of the EIFS product for disposition by the Court.

The Marrones and Deans each ultimately discovered that the EIFS siding on their homes was defective and had caused damage to the EIFS itself, as well as damage to the roof, soffits, sheathing, framing, substrate of the house, windows and doors. Although it is not stated how much the Marrones spent to repair the EIFS on their home, the Deans spent approximately $150,000 replacing the siding and other work to the exterior and interior of the house. Neither the Marrones nor the Deans alleged that the EIFS caused any personal injury or damage to anything other than their homes.

The Appellate Division affirmed the granting of summary judgment on each of the NJPLA claims based on the ‘economic loss’ doctrine. The Court in Marrone defined economic loss as “the diminution in value of the product because it is inferior in quality and does not work for the general purpose for which it was manufactured and sold.” The Appellate Division concluded that actions where a purchaser is claiming damage to the product itself, rather than any personal injury or damage to other property, are better suited for contract claims, rather than tort claims, such as a claim under the NJPLA.

The Appellate Division emphasized the policy decisions underlying tort and contract principles and concluded that “the policy behind contract law ‘operated on the premise that the contracting parties, in the course of bargaining of the terms of the sale, are able to allocate risks and costs of the potential nonperformance.’” The Appellate Division determined that rather than pursue the tort claim under the NJPLA, the Marrones and the Deans had the opportunity to negotiate with each of the sellers over the EIFS siding, by either walking away from the deal or insisting that the sellers remediate the EIFS defect. Each of the sellers did not take that action and they were not then permitted to pursue a claim against the manufacturer in tort.

Each of the Marrones and the Deans argued that the EIFS siding did cause damage to “other property” far beyond just the EIFS itself. They each claimed damage to other parts of their houses, including the roof and soffits, windows, doors, sheathing and wood framing. The Appellate Division in both Marrone and Dean found that these other parts of the house were all component parts of the house and not separate from the EIFS. The Appellate Division concluded that the buyers purchased a house, not the components parts separately, and any damage to the other component parts of the house were still damage to the “product” itself. As a result, those claims did not take the cases outside of the economic loss doctrine and summary judgment was still appropriate.

A consequence of these two decisions is that it is incumbent upon buyers to negotiate with sellers over problems that may arise from EIFS, or any other potential system or product of a house, at the time of the sale, rather than waiting and asserting a tort claim if something later goes wrong.
 

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The U.S. Green Building Council, on April 27, 2009, implemented changes to Leadership in Energy and Environmental Design or LEED, the country’s most popular and recognizable green building rating system. The revised rating system, known as LEED 2009, contains several significant changes affecting developers who previously operated under the old system. LEED 2009 also features many positive improvements to the LEED rating system.

One of the most significant changes in attaining LEED certification now requires newly built, LEED certified buildings to submit electricity bills for at least one year following the building’s completion. The U.S. Green Building Council is attempting to move beyond certifying buildings based solely on their design and projected energy use and only certify buildings that demonstrate actual energy savings. However, buildings that have already been certified under the old system will continue to retain their existing LEED certification and will not have to reapply. 

Under the old system, buildings could attain a maximum of 69 possible points across 5 Classification Categories (i.e., Sustainable Sites, Water Efficiency, Energy and Atmosphere, Materials and Resources and Indoor Environmental Quality) and are ranked from “certified” to “platinum” based on the number of points earned. LEED 2009 enables developers to target a total of 110 possible points across 6 Classification Categories, including a new Classification Category known as Innovation in Design. 

The increase in the total number of possible points is based in part upon re-weighting of credits within the LEED Classification Categories to reward the most important green building goals, namely, energy efficiency and the reduction of carbon dioxide. For example, under the old system, the installation of a bike rack and the implementation of water efficient landscaping with a 50% reduction based on the average size and vegetation were each worth 1 point. Under LEED 2009, water efficient landscaping with a 50% reduction based on the average size and vegetation is now worth 2 points. 

LEED 2009 projects will also be able to earn “bonus points” for implementing green building strategies that address the most important environmental issues facing their region. A project can now be awarded as many as 4 extra points for achieving these regional environmental priorities. In Northern New Jersey, bonus points are awarded for the preservation and restoration of damaged habitats, limiting the harmful effects of stormwater and wastewater and reusing existing building structures. 

The green building process is highly technical and complicated, and simple misunderstandings or lack of green building experience can lead to missed opportunities or failure to achieve the desired rating altogether. Consultation with an experienced attorney will result in more informed decisions in navigating the green building process. 

Watch this blog for updates on green building and green technology.
 

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